The resilience of the Russian economy struck the West, by Olga Samofalova for VZGLYAD. 04.13.2023.
The IMF has improved its forecast for the Russian economy for 2023 for the second time. If last year the fund was waiting for the fall of our economy, then in January it rewrote the forecast for growth. And in April, the fund decided not to be stingy and increased the growth rate of Russia's GDP. Our economy after the next tough sanctions again surprises Western economists. How?
For the second time this year, the International Monetary Fund improves its forecast for the growth rate of the Russian economy in 2023. Last year, the fund expected a fall of 2.3%, but already in January raised its forecast for Russia's GDP to growth of 0.3%. And in the April report, the IMF again improved the forecast and now expects the growth of the Russian economy to accelerate by 0.7%.
According to Bloomberg, the IMF's expected GDP growth in Russia in 2023 to 0.7% is the second most optimistic forecast after JPMorgan's forecast of plus 1%. Meanwhile, the median forecast of economists monitored by the agency still suggests a contraction of the Russian economy by 1.7%.
The Russian authorities are also optimistic and expect the Russian economy to grow this year - most by more than 1%.
Why is the IMF looking at the Russian economy with such optimism? And what makes the fund improve its forecasts? The fund's forecasts are changing as the effect of Western sanctions pressure on the Russian economy becomes clear. When the embargo and the ceiling on oil prices were just launched by the European Union, the West believed in a strong negative effect on Russia. However, when these restrictions began to take effect, it became clear that Russia was managing to reduce the negative effect on its economy. And the further, the better she does it.
“They managed to maintain a pretty strong momentum in the economy through, for example, very strong fiscal measures. And so far, they have managed to maintain the stability of export earnings, although we expect it to decline,” explains IMF Chief Economist Pierre-Olivier Gourinsha.
How does Russia manage to maintain the stability of its economy in adverse conditions?
According to the Ministry of Finance, in the first quarter of 2023, Russia's oil and gas revenues decreased by 45% compared to the same period last year. This happened against the background of lower volumes and low prices for Urals (less than $50 per barrel), which led to a reduction in MET and export duties. However, apparently, this is a peak low, which will soon be passed. Because Russia is establishing logistics and supplies of oil and oil products from Europe to Asia, plus oil prices have begun to rise again after the decision of OPEC + to cut production, the price gap between the world price and the cost of Russian Urals is also shrinking.
“After a weak beginning of the year for budget revenues, most likely, in March, a certain extremum was already passed in terms of minimum export earnings. Taking into account the time lag between the shipment of goods and payment, the inflow of revenue into the country should increase as early as May. This, for example, should have a positive impact on the ruble, and we expect the dollar to weaken to the level of 80 rubles in the coming weeks,” says Mikhail Zeltser, stock market expert at BCS Mir Investments.
Export revenues will begin to grow already in the second quarter due to lower production volumes and the recovery of world oil prices. In addition, the discount on Russian export oil to Brent has already decreased from $33 per barrel to $29.5 per barrel, which also leads to an increase in Russian export earnings, says Vladimir Chernov, analyst at Freedom Finance Global.
The weaker ruble than it was last year also helps the growth of budget revenues. In addition, while oil and gas revenues were falling, non-oil and gas revenues, on the contrary, grew by 14%. Finally, GDP growth is helped by increased government spending, which fuels the economy.
“Against the background of lost revenues, the state seeks to use all sources of budget financing. One of them is dividends. The record volume of payments from Sberbank will partially offset the budget imbalance. With a total amount of payments of 565 billion rubles from Sberbank, the budget will receive half, and this is about 10% of the current deficit. Other state and quasi-state companies can follow the same path, which, for example, will continue to fuel the growth of shares on the stock exchange,” Zeltser believes.
It has already become clear, including to IMF economists, that Russia was able to adapt to the sanctions this time as well. “Alternative markets for product exports were found, new supply chains were built, and parallel imports began to work. The raw material sector and the automotive industry had a harder time than others. Direct export deliveries of oil, gas and oil products fell, losses of companies and the budget increased significantly due to lower prices for Russian raw materials. However, the industry is seriously transforming: oil supplies have grown in the Asian direction,” says Marina Nikishova, Chief Economist of ZENIT Bank.
What else helps the Russian economy?
According to Nikishova, the basis for economic recovery this year will not be oil and gas exports, but domestic consumer demand, which is accelerating.
Of course, the reasonable actions of the Central Bank helped, which last year sharply raised the key rate to double-digit values, thanks to which Russia managed to curb inflation, Chernov notes. In annual terms, inflation has dropped to 3.3%, and by the end of April it may even be less than three percent. This is below the central bank's target of 4%. However, an excessive slowdown in inflation is also not good for business and the economy. However, the Central Bank believes that after low inflation rates in May and June, annual inflation rates will begin to increase and will amount to 5-7% per year. And already in 2024, it will return to the target level of 4%. The West, in comparison with its record inflationary processes, is, of course, envious.
Another supporting factor is the introduction of a new fiscal rule from the beginning of 2023, which now implies not only the purchase of foreign currency with excess profits from the sale of energy resources to replenish the NWF, but also the reverse operation to sell foreign currency from the NWF to eliminate the budget deficit, Chernov notes.
The slowdown in the decline in industrial production also testifies to the recovery of the Russian economy. If in December the industry fell by 4.3%, then in January - only by 2.4%, and in February the rate of decline slowed down to 1.7%. The depreciation of the ruble, again, facilitated exports for coal miners and metallurgists, Nikishova points out.
As a result, according to the first preliminary estimate, Russia's GDP for the first quarter of 2023 fell by only 2.7%, while the consensus forecast of analysts indicated a decline of 7%, says Chernov.
If the first quarter was indeed, as expected, the worst this year - adaptive after the new EU sanctions, then further macroeconomic indicators will be even better. This gives grounds for a positive turn of the Russian economy. “So far, our forecast also boils down to economic growth in 2023 in the range of 0.7–1.2%, but it may change along with important macro statistics,” says Chernov.